CARES Act and Charitable Giving Incentives
The Coronavirus Aid, Relief, and Economic Security (CARES) Act went into effect in March 2020 to address the impact of COVID-19. The bill provides individuals and corporations increased tax incentives for charitable giving in hopes of encouraging donations and stimulating philanthropy throughout the U.S.
CAA encourages you to consult your financial advisor to take full advantage of these new incentives and how they apply to your situation.
Here is how the CARES Act provides incentives to donate to CAA in 2020.
INDIVIDUALS WHO ITEMIZE DEDUCTIONS
The adjusted gross income (AGI) limit for cash contributions was increased for individual donors. For cash contributions made in 2020, you can now elect to deduct up to 100 percent of your AGI (increased from 60 percent).
Existing carry-over rules still apply, so if your donations in 2020 exceed your AGI deduction limits, you may carry forward excess deductions for up to five subsequent tax years. As always, donors should consult with their tax and legal advisors when considering their charitable giving.
INDIVIDUALS WHO DO NOT ITEMIZE DEDUCTIONS
The CARES Act allows for an additional, “above-the-line” deduction for charitable gifts made in cash of up to $300. If you are not itemizing on your 2020 taxes, you can claim this new deduction.
IRA QUALIFIED CHARITABLE DISTRIBUTIONS (QCD)
The CARES Act did not change the rules around the QCD, which allows individuals over 70½ years old to donate up to $100,000 in IRA assets directly to a charity annually, without taking the distribution into your taxable income.
However, under the CARES Act an individual can elect to deduct 100 percent of their AGI for cash charitable contributions. This effectively affords individuals over 59½ years old the benefits similar to a QCD. They can take a cash distribution from their IRA, contribute the cash to charity, and may completely offset tax attributable to the distribution by taking a charitable deduction in an amount up to 100 percent of their AGI for the tax year.
This is a great incentive to make a large charitable contribution in 2020 and a smart strategy as long as you are between the ages of 59½ and 70½ and are not dependent on existing retirement funds
The AGI limit for cash contributions was also increased for corporate donors. Corporations can now deduct up to 25 percent of taxable income (increased from 10 percent).